The China Bubble: Demographics: Old/Young, Rich/Poor, Urban/Rural

This article is the part 3 from Chapter 5 of Richard Heinberg's new book The End of Growth, which is set for publication by New Society Publishers in August 2011. This chapter 'Shrinking Pie: Competition and Relative Growth in a Finite World' looks in greater depth at the prospects for further development in in an increasingly resource strained environment.

Beijing’s one-child policy, introduced in 1979, was largely effective—though it had the abhorrent side effect of encouraging a disdain for female infants, a prejudice that has led to abortion, neglect, abandonment, and even infanticide. Applying mainly to urban couples of Han descent, the policy reduced population growth in the country of 1.3 billion by as much as 300 million people. This meant that by the 1980s and ’90s, young workers had fewer dependents to support—and China’s manufacturing boom drew strength from young people moving from country to city to work in factories. For the nation as a whole, having a few hundred million fewer mouths to feed has acted as a social safety valve so far, and will reduce misery in the decades ahead as world resources deplete and human carrying capacity disappears.

However, there is a demographic price to pay. Beginning in 2015, China will see a growing number of older citizens relying on a shrinking pool of young workers.

Most of the nation’s factories are located in its coastal cities, of which some, like Shenzen, were built from scratch as industrial centers. Shenzen hosts the Foxconn Technology Group, an electronics manufacturer that makes components for Dell, Hewlett-Packard, and Apple; nearly all its workers are under 25.

China’s older workers have largely been left behind in rural villages, or pushed from their urban homes into apartment blocks on cities’ outskirts to make way for new apartments and office buildings occupied by younger urbanites and the companies hiring them. Age discrimination is a fact of life.

All of this will gradually change as China’s work force ages. Within a generation, the average age of a Chinese worker will be higher than that of an American worker.[1] One of China’s leaders’ biggest fears, expressed repeatedly in public pronouncements, is that the nation will grow old before it grows rich (Japan, in contrast, got rich before it grew old).

To avoid this fate, China is trying to grow its economy as fast as possible now, while it still can.

One way it does this is to offer paltry pensions and poor-quality health care to older citizens. This makes China an attractive place for foreign corporations to do business. In the U.S., health care costs for older workers are often double the costs for workers in their 20s, 30s and 40s. By keeping its workforce young and denying them benefits, China’s leaders keep costs down. American or European companies that move production to China or buy Chinese goods gain leverage to rewrite terms of employment with their older workers at home—or they can simply shut down domestic factories.

China’s youthful labor force attracts foreign investment. But as the country’s work force ages, its competitive advantage may evaporate. Moreover, the lack of adequate pensions and health care for Chinese workers will eventually result in worsening social stresses and strains.

It is the financial sacrifices of its people that have given China the opportunity to attract capital investment to its industries, and that geenerate subsequent profits that are then loaned back to the United States and other industrialized nations.

To understand the significance of those sacrifices, one must understand a little of the country’s recent history. At the end of the Communist revolution in 1949, China was impoverished and war-ravaged; the overwhelming majority of its people were rural peasants. Communist Party chairman Mao Zedong set a goal of bringing prosperity to the populous, resource-rich nation. A period of economic growth and infrastructure development ensued, lasting until the mid-1960s. At this point, Mao appears to have had second thoughts: concerned that further industrialization would create or deepen class divisions, he unleashed the Cultural Revolution, lasting from 1966 to the mid-1970s, when industrial and agricultural output fell. As Mao’s health declined, a vicious power struggle ensued, leading to the reforms of Deng Xiaoping. Economic growth became a higher priority than ever before, and it followed in spectacular fashion from widespread privatization and the application of market principles. “To get rich is glorious,” Communist officials now proclaimed.

During the 1950s, ’60s, and ’70s, the Chinese people had worked hard and endured grinding poverty for the good of the nation. But in the 1990s a small segment of the populace—mostly in the coastal cities—began to enjoy a middle-class existence. Some Chinese were indeed becoming gloriously rich, while most remained mired in extreme poverty. The resulting wealth disparity is only bearable as long as the middle class continues to expand in numbers, offering the promise of economic opportunity to hundreds of millions of destitute peasants in the rural interior.

China’s central government has unleashed a firestorm of entrepreneurial, profit-driven economic activity that is both unsustainable and difficult to control. Meanwhile, as we have seen, the uncontrollably dynamic economy is export-dependent and ill suited to meeting domestic needs.

China has encouraged rapid export-led, coal-fired economic growth, perhaps as a way of putting off dealing with its internal political, demographic, and social problems. If that is indeed Beijing’s strategy, it has worked spectacularly well for a short while. But it is built on contradictions and false hopes. Over the course of the current decade, the Chinese demographic-economic strategy will likely begin to unravel. What happens next is anybody’s guess.[2]

Richard Heinberg is the author of eleven books including 'The Party's Over', 'The End of Growth', and 'Snake Oil'. He is Senior Fellow-in-Residence of Post Carbon Institute and is widely regarded as one of the …

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